One of the harsh realities a company has to face is business insolvency. Sometimes, things just fail to go according to plan, increasing the risk of a close-down. If you are in this situation as a business owner, insolvency doesn’t necessarily translate to the end of a career; it is just a turbulent season in business that you can overcome with the right strategy. Here are some tips to help you deal with company insolvency.
Explore Company Voluntary Agreement (CVA)
Your company can enter into a legally binding agreement with creditors, outlining how you intend to pay back your debts in part or wholly over a stipulated period. If you manage to bring about 75% of creditors by debt value to agree with your payment plan, you can continue to keep the company in business as you repay its debts.
It is not necessary to let customers know that you have entered a CVA. This will enable your company to continue with its normal business operations without raising alarm bells for new clients.
Go into Administration
Voluntary administration is another viable solution for dealing with company insolvency. This involves hiring a professional insolvency practitioner who serves as an administrator and takes full control of the business and its assets.
The administrator develops a proposal of measures to get the company running, which may include selling part of the assets to settle debts or negotiating with creditors. While under administration, your company is protected from facing any legal action by those seeking to recover their debts.
Enter into Liquidation
Liquidation as a result of company insolvency is referred to as creditors’ voluntary liquidation (CVL) or compulsory liquidation. Going into liquidation means you decide to wind up your company by appointing an independent registered liquidator. The process involves selling all the remaining company assets to settle creditor claims.
This means you have to know who gets paid first when a company goes into CVL. A public notice is issued, and you face a court hearing, which leads to receiving a winding-up order. Once you have closed a company, cleared all its debts, and cleared its name from the insolvency register, you can start a new company featuring the same team.
Consider an Informal Agreement
While this may sound like a company voluntary agreement, an informal agreement is not legally binding and is attained on an informal basis. This option can only work if you have an excellent relationship with your creditors and have built trust and credibility over time.
Enter into Receivership
A receivership is an ideal court-appointed tool that can help your troubled company evade bankruptcy while enabling creditors to recover their owed funds. The aim of a receivership is to facilitate the company’s restructuring process and restore your business to profitability.
The court appoints a registered liquidator or trustee who serves as a receiver and takes over managing all the aspects of your company, including assets, operations, and financial decisions. The receiver also ensures compliance with all government regulations and standards to avoid penalties and maximize profits. While company directors may remain in place during the duration of the receivership, their authority is limited.
If your company has become insolvent, you can take these steps to redeem yourself. With a clear plan and proper guidance, your company can navigate insolvency and emerge stronger, ready to seize new opportunities.
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